Revenue Management involves application of analytics to maximize revenue growth by optimizing product availability and pricing and predict consumer behavior at the micro market level. Revenue Management is highly specialized for an industry. Revenue Management software can be delivered standalone or as part of a quote-to-cash suite.
Learn what is Revenue Management, how it works and how to choose the right Revenue Management software.
Last updated: Apr 14, 2021
What is Revenue Management?
Revenue management is about the use of analytics
to predict consumer behavior at the micro-market levels
to optimize product availability and price
to maximize revenue growth.
In essence, Revenue management helps in aligning perception of the product value with the product prices, placement, and availability. This, in turn, will help us maximize the revenue.
Revenue management focus necessarily varies by industry/vertical/segment. While there may be some similarities, some common elements, revenue management is highly specific to a vertical.
Why Revenue Management Software (RMS)?
In general, revenue management software helps you align inventory and pricing to the perception of value at the micro-market level to maximize revenue and profit.
A Revenue management software will consume many data such as
· Pricing details at an “individual” (micro-segment, account level)
· Revenue recognition regulations applicable in the particular geography (built into the software itself)
· Revenue models (such as subscription, and pay-per-use) relevant for the specific industry (that you customize)
Based on this data, under the review of a revenue management expert, RMS will help maximize revenue as well as profit by managing elements such as
· Compliance demands
· Pricing optimization
· Promotion optimization
· Revenue Leakage Detection
· Product rationalization
Revenue Management software can be delivered standalone or as part of a quote-to-cash suite, which includes pricing software, CPQ software, and quote management software. When used by sales and marketing managers, revenue management also needs to integrate with CRM software.
L2RM (Lead-to-revenue management) is another adjacent/overlapping area to Revenue Management. Early L2RMs solely bridged a gap between lead generation activities and selling activities that were managed by a customer relationship management (CRM) system (e.g., closing the deal). The opportunity to calibrate marketing spend to revenue generation was a significant driver of L2RM. In a recent survey by Bizibl of business-to-business (B2B) marketers, slightly more than 50% of marketing organizations had reported implementing a system to manage the lead-to-revenue process.
Key Benefits of Revenue Management Software
While key benefits vary according to the industry, the classes of key benefits applicable across the sectors are:
Accurate Demand Forecasting (Different customer segments have different revenue yielding patterns. And, these patterns change. An RMS will be able to manage the forecast at the customer segment level dynamically)
Revenue optimization (Revenue optimization is a combination of pricing, demand, and marketing strategies used to maximize revenue growth, based on analysis of price points, sales channels, and other areas)
Regulatory Compliance Management
Promotion management (At any point, there may be many promotions that will be running concurrently. It is impossible to keep track of them manually, let alone use them as a basis to maximize the revenue. A sound revenue management system addresses this pain point)
Product/SKU Rationalization. (The benefits of proper SKU management include Optimizing inventory levels (right stock at the right time), and Increased revenue)
Why Revenue Management is Important
Irrespective of the industry (be a professional services firm, a software company, a services company, or a retail chain), revenue management software will help you close the accounts quickly at the same time providing you a complete picture of your organization’s revenue. You will be able to understand the impact of elements such as discounting, deal duration, frequency, and product mix on the growth as well as profitability. It will also help you do better forecasting of revenue and profit.
In the businesses, with Fixed Capacity, Perishable Inventory, or Low Marginal Servicing Costs, Revenue management can add significant upside. It is also highly useful when the demand can be segmented with varying sensitivity to prices among the segments. Revenue management can help manage peaks and valleys in demand, which can be predicted with some degree of certainty.
Some of the revenue management software includes and/or integrates with contract management. Contract management or Contract Lifecycle Management is closely related and widely used business activity to Revenue Management. New ways of driving revenue mean the customer lifecycle is changing. Allocating the contracted revenues based on GAAP revenue recognition standards is undergoing massive change due to the recent GAAP mandates ASC 606 and IFRS 15 (for subscription-based businesses, and when they are permitted to recognize revenue) — making contract management, more than ever before, an essential part of a Revenue Management System.
There are software products available to address channel revenue management. Most revenue management software products have included revenue models to be able to help manage different revenue streams such as subscriptions, usage-based billings. Some products have the ability to detect revenue leakages in different scenarios.
Most revenue management software will also help you to solve and/or manage the revenue recognition compliance, thereby reducing the risk.
For those businesses with inventory distributed across many locations, Revenue Management will help optimize the inventory. It is not just across sites but can be across multiple channels. Multi-channel inventory management (also known as multi-source inventory) is the process by which businesses account for and track orders from various sales sources on the stock that is stored at multiple locations, such as marketplaces, e-commerce, retail, and wholesale. Getting the right products at the right place and the right time is a vital part of this process.
Key Features of Revenue Management Software
Across the board, one would expect some common capabilities in any Revenue Management System:
· Data Visualization and Reporting
· Track pricing details for micro-level
· Revenue recognition
· Revenue models, such as recurring and transaction-based
· Promotion management
Revenue Management Features relevant in Hotels/Hospitality Industry
· Dynamic Pricing
· Yield Management
· Online Reputation Analysis
· Interface with rate shopper (3rd party rate shopper)
Buyer’s Guide - Guide to Choose Right Revenue Management Software
Revenue management solutions are tied closely to the industries (for business dynamics) and geographies (from a compliance perspective). So, the first step in choosing the software is to lay down the context in detail and use it to filter out the solutions not related to the vertical context.
As discussed earlier, a revenue management software solution can have very many capabilities. You need to assess which of those capabilities are essential for your business.
Buyers are recommended to consider peer reviews and expert opinions that are
available on Cuspera before making buying decisions.
Cuspera’s AI based engine guides you through the requirement process to help you
the right software.
And, a Revenue Management software can be part of a quote-to-cash system, part of the marketing/sales operations and more. Knowing who in the organization will benefit and use the software will help you choose the right software.
Since the revenue management works in conjunction with other business activities such as contracting, you will also need to determine the touchpoints between the revenue management software and other software that you use today. Integration between these products is imperative to get the most out of the deployment.
We recommend you evaluate whether the benefits of AI in the selected software provide good enough ROI for you. Most AI systems need very large quantities of data before they can make useful predictions and decisions. You need to assess your data readiness.
The U.S. revenue cycle is one of the most complex ‘invoice/payment’ processes ever to exist. From pre-service to zero balance, there are many silos of information from the system of record, third-party data sets, data from bolt-on niche platforms and more.
Other factors to consider:
How easy will it be to get the software up and running? How much external help is needed? And, availability of that support.
One has to take into account data onboarding, customization needed, integrations, training, and onboarding the users, etc.
What is the real revenue impact expected and over what timeframe? This may be needed to get the management buy-in.
Challenges in adopting Revenue Management Software
· Expansive skill set needed as RM is a complex topic. Revenue management systems should not be seen as plug-and-play solutions. Need an experienced RM to steer the system.
· Dealing with business evolution (or anticipating) in adopting new channels of revenue. The selected software may not be able to support the new channels.
· Goal alignment between Marketing, Sales and Revenue teams
· Understanding of the Channels in depth
· The revenue management system requires loads of data that is updated in real-time. It may take up to six months for the system to stabilize.
ROI of Revenue Management Software
Investments in revenue management generally have a very short payback period because almost all of the revenue increases generated goes straight to the bottom line. Using the Airline and Hotel industries where the capacity is fixed, one can look at benchmark revenue improvement to the tune of five percent plus or minus three percentage points. However, in the industries where there is more flexibility capacity, the potential benefits are likely to be considerably larger.
“85% Percent of respondents from large and full-service hotels who say that upgrading their Hotel Revenue Management capabilities has improved financial results. Revenue Growth”
“82% - Percent of respondents who say that one of the biggest benefits to be gained from Hotel Revenue Management is a reduction in time associated with traditional pricing tactics and getting pricing recommendations faster”.
AI in Revenue Management
Some of the Software Products in the Revenue Management space use AI to generate custom market segments with an implicit correlation between customer information and preferences. (Traditional approaches use pre-set market segmentation for future demand forecasting and management).
Revenue managers would look for opportunities to increase prices and maximize revenue on high-demand dates while maximizing profitability at other times. An AI-based revenue system can automatically make decisions and select the revenue strategies applicable to different market segments.
AI is increasingly used in the Hotel Industry in the pricing, booking management, selling and guest experience management.
AI already powers revenue management for airlines. Forecasting future passenger demand is one where there is a significant AI enablement in revenue management systems. For instance, Amadeus' AI-powered revenue management system “has evolved from focusing on capacity utilization - by forecasting each flight’s number of passengers, no-shows, and cancellations - to more advanced forecasting of travelers’ price sensitivity in different markets, network-wide passenger flows as well as what drives the way travelers choose between different options.”
AI is also used in managing/optimizing trade promotions particularly to manage the costs and the time to plan and deliver the promotions.
AI helps optimize pricing and promotions across categories for retailers.
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